Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: a panel data analysis.

McKnight, Phillip J.; Weir, Charlie

Abstract

This paper examines the impact of governance and ownership variables on agency costs for a panel of large UK quoted companies. We use three measures of agency costs: the ratio of sales-to-total assets, the interaction of free cash flows and growth prospects and the number of acquisitions. We employ a range of techniques to analyse the data: fixed-effects, instrumental variables, and Tobit regressions. We find that the changes in board structures that have occurred in the post-Cadbury period have not, generally, affected agency costs. This suggests a range of mechanisms is consistent with firm value maximisation. We also find that having a nomination committee increases agency costs, which indicates that there are costs associated with certain governance mechanisms. Increasing board ownership also helps to reduce agency costs. We also find that debt reduces agency costs. Our results raise questions about the usefulness of the information sent to shareholders when firms adopt a recommended governance framework.

Citation

MCKNIGHT, P.J. and WEIR, C. 2009. Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: a panel data analysis. Quarterly review of economics and finance [online], 49(2), pages 139-158. Available from: https://doi.org/10.1016/j.qref.2007.09.008

• Journal Article Type: Article
• Acceptance Date: Sep 25, 2007
• Online Publication Date: Feb 1, 2008
• Publication Date: May 30, 2009
• Deposit Date: Oct 14, 2016
• Publicly Available Date: Oct 14, 2016
• Journal: Quarterly review of economics and finance
• Print ISSN: 1062-9769
• Electronic ISSN: 1878-4259
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 49
• Issue: 2
• Pages: 139-158
• DOI: https://doi.org/10.1016/j.qref.2007.09.008
• Keywords: Agency costs; Governance mechanisms; Codes of best practice
• Public URL: http://hdl.handle.net/10059/1897